Correlation Between Ford and Chipotle Mexican
Can any of the company-specific risk be diversified away by investing in both Ford and Chipotle Mexican at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Ford and Chipotle Mexican into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Chipotle Mexican Grill, you can compare the effects of market volatilities on Ford and Chipotle Mexican and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Ford with a short position of Chipotle Mexican. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Chipotle Mexican.
Diversification Opportunities for Ford and Chipotle Mexican
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Chipotle is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Chipotle Mexican Grill in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chipotle Mexican Grill and Ford is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Ford Motor are associated (or correlated) with Chipotle Mexican. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chipotle Mexican Grill has no effect on the direction of Ford i.e., Ford and Chipotle Mexican go up and down completely randomly.
Pair Corralation between Ford and Chipotle Mexican
Taking into account the 90-day investment horizon Ford is expected to generate 1.82 times less return on investment than Chipotle Mexican. But when comparing it to its historical volatility, Ford Motor is 1.28 times less risky than Chipotle Mexican. It trades about 0.17 of its potential returns per unit of risk. Chipotle Mexican Grill is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 112,898 in Chipotle Mexican Grill on August 31, 2024 and sell it today you would earn a total of 15,824 from holding Chipotle Mexican Grill or generate 14.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Chipotle Mexican Grill
Performance |
| Timeline |
| Ford Motor |
| Chipotle Mexican Grill |
Ford and Chipotle Mexican Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Chipotle Mexican
The main advantage of trading using opposite Ford and Chipotle Mexican positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Chipotle Mexican can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Chipotle Mexican will offset losses from the drop in Chipotle Mexican's long position.The idea behind Ford Motor and Chipotle Mexican Grill pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Chipotle Mexican vs. DXC Technology | Chipotle Mexican vs. Micron Technology | Chipotle Mexican vs. Deutsche Bank Aktiengesellschaft | Chipotle Mexican vs. First Republic Bank |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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